They say the only certainties in life are death and taxes, and this has never seemed more true! As the UK enters unchartered waters with Brexit, there is much we do not know about what the future will bring.
However, there are some things you can be sure of and can control to your benefit, whatever happens around us.
Taxation of assets
Double tax treaties, such as the one between UK and Spain, are independent of the EU. So if you are resident here, your existing tax treatment will not change with Brexit, or other external influence.
Something that can make a significant difference to the way you are taxed is the way you structure your assets and wealth.
You can usually find Spain-compliant investment opportunities that can offer significant tax benefits, while also providing additional benefits like currency and income flexibility.
Meanwhile, expatriates who favour UK-centric assets and investments could see increased taxation with Brexit, as some non-EU/EEA assets are treated differently. For example, if you sell a home in Spain to buy a British property once the UK leaves the EU/EEA, you may no longer be eligible for capital gains tax relief.
At any time, the UK can potentially increase the tax burden for non-residents, as has happened recently with property. 2015 brought new capital gains tax liability for non-residents on UK residential property; from 5 April this will also apply to commercial property. In 2017, UK residential property owned through certain offshore structures became liable for UK inheritance tax alongside other worldwide property.
Tougher tax rules are also possible following a change in UK government, including the possibility of a new wealth tax on higher-value UK assets.
A locally-based adviser can advise about asset protection and taking advantage of tax-efficient opportunities in Spain.
Taxation of pensions
A similar threat hangs over UK pensions. Today, UK pensions can potentially be accessed by Britons abroad without paying any UK tax (under the double tax agreements). Brexit will not change this, but the government may take steps to recoup more taxes from expatriate pensions.
The 25% ‘overseas transfer charge’ introduced in 2017 may indicate things to come. Currently, EU residents are only affected if transferring UK pension funds to Qualifying Recognised Overseas Pension Schemes (QROPS) outside the EU/EEA, but the scope may increase after Brexit.
Once you have left Britain, you may find fewer advantages to keeping UK pensions where they are, but it is essential to take regulated, personalised pensions advice to establish the most suitable approach for your circumstances and goals. If you are considering transferring, review your options now, before the tax-free window potentially closes.
It is not just Brexit that can disrupt investment and currency markets today. At any given time, external influences and events can unexpectedly shift the direction of markets.
Diversification is the key to minimising risk. A portfolio made up of a mixture of asset types – including cash, equities and bonds – from different countries, regions and market sectors is best placed to ride out turbulence. This approach reduces exposure to under-performance in any single area and enables the opportunity to produce positive returns over time.
Conversely, if you mainly hold UK assets, your returns will be more vulnerable to the fortunes of sterling and the British economy during these uncertain times.
Of course, you need to make sure your investments offer the right balance of risk and return for your peace of mind. An experienced financial professional can use appropriate tools to create a clear and objective risk profile for you.
While we cannot avoid death, with good estate planning we can control who receives our legacy and when.
Even after Brexit, you can override local ‘forced heirship rules’ by applying the law of your nationality to your estate through the EU regulation, ‘Brussels IV’. While this would ensure your legacy is distributed according to your wishes, beware this can have tax implications.
If you are seen as UK-domiciled – as many expatriates are – your estate is liable to UK inheritance tax as well as Spanish succession tax.
You may be able to restructure your wealth to reduce tax liabilities, while ensuring your chosen heirs receive their inheritance at the right time, so explore your options.
For more information and personalised advice, contact Blevins Franks on +34 971 719 181.
To keep in touch with the latest developments in the offshore world, check out the latest news on Blevins Franks Tax & Wealth Management Specialists.
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This article was written on the 1st of April, 2019.